* Monti says problems confined to historic Tuscan lender
* Bank of Italy rejects criticism of supervision
* Management under pressure at angry shareholder assembly
By Silvia Aloisi and Stefano Bernabei
SIENA, Italy, Jan 25 Italian Prime Minister
Mario Monti called on Friday for an immediate investigation of a
widening scandal at Monte dei Paschi di Siena over the historic
bank's losses of nearly $1 billion in a series of complex
Monti defended the Bank of Italy, whose governor at the time
of the losses was Mario Draghi, the European Central Bank chief
now facing criticism for failing to spot the trouble brewing at
"This episode has to be dealt with the maximum clarity and
those responsible have to be dealt with rigorously," Monti told
Monti has promised to address parliament on the matter but
he denied the government shared responsibility and said the
problems did not affect the Italian banking system as a whole.
He expressed "full and total confidence" in the Bank of Italy.
"Italian savers should know, and I think they know, that
Italian banks have been among the most solid during the crisis,"
he said, adding that Monte Paschi was the only bank to be
required to boost its capital by European authorities.
The Tuscan bank, Europe's oldest, which is already seeking a
3.9 billion euro ($5.22 billion) government bailout, this week
revealed derivatives and structured finance trades that could
cost it as much as 720 million euros.
The case has already become a major political issue ahead of
national elections on Feb. 24-25 because of historic links
between the bank and the centre-left Democratic Party, which is
leading in opinion polls.
Bank of Italy Governor Ignazio Visco, under pressure for the
central bank's supervision of the case, rejected criticism,
saying it had nothing to hide.
"It's wrong to insinuate that there was a lack of
supervision by the Bank of Italy," he told CNBC television at
the sidelines of the World Economic Forum in Davos.
He said there was no threat to the stability of Monte dei
Paschi, which is already under investigation for the expensive
acquisition of smaller rival Antonveneta in 2007.
"There is no question that the bank is stable," he said.
However doubts were raised about the Bank of Italy's
assertion that it was unaware of the trades at the centre of the
scandal by reports in the Corriere della Sera daily.
It quoted central bank documents saying said inspectors had
expressed concerns about the monitoring of derivatives as long
ago as 2010. No immediate comment on the report was available
from the Bank of Italy.
Monte Paschi shares, which had fallen 20 percent this week,
recovered strongly on Friday, rising almost 9 percent as prices
rebounded after the recent losses.
In Siena, where Monte Paschi was holding a special
shareholder meeting to discuss the scandal on Friday, Chairman
Alessandro Profumo said the bank was still evaluating the impact
of the derivatives trades on its finances.
But the bank management faced criticism from shareholders
enraged by a scandal that has raised the spectre of
nationalisation of a bank whose origins go back to the
Renaissance and which is synonymous with the beautiful Tuscan
"What they did to Monte dei Paschi is worse than Bribesville
and Parmalat put together," said Beppe Grillo, head of the
anti-establishment 5 Star Movement, who attended the meeting. He
was referring to the two biggest scandals in recent Italian
"That's the scale of the damage they've done. They've turned
the party into a bank and the bank into a party," he said in
reference to the Democratic Party's links with the bank.
The case has already forced former chairman Giuseppe
Mussari, who left the bank in April, to step down as head of the
Italian banking association this week.
The Bank of Italy has said the former management of Monte
Paschi hid details of the trades while Visco said the central
was working with judicial authorities investigating the case.
"There is no immediate action from the Bank of Italy. We are
actively collaborating with the judiciary," he told Reuters.
The latest deals to be revealed are the so-called
"Alexandria" trade with Japanese bank Nomura, the
"Santorini" trade with Deutsche Bank and a derivative
called "Nota Italia", which several sources said was structured
by JP Morgan. JP Morgan declined to comment.
The Corriere della Sera said central bank inspectors had
expressed misgivings about the supervision of both the
Alexandria and Santorini deals.
Findings of a review on the trades are expected to be
submitted to the bank's board by mid-February.